Credit Suisse, which underwent a takeover by Swiss rival UBS earlier this year, has been fined a record £87m by the Bank of England for severe risk management failures. The bank was found
to have fallen "well below" regulatory standards in its dealings with Archegos Capital Management, a private investment firm. In March 2021, Credit Suisse incurred a loss of $5.1bn (£4bn) when Archegos defaulted. Critics argue that the bank should have been more aware of the risks posed by Archegos, as it borrowed substantial sums to build risky positions in a few companies.
This incident caused "significant financial and reputational damage" to Credit Suisse, and other lenders, including UBS, were impacted, with the latter losing $861m (£671m). Concurrently, the US Federal Reserve fined Credit Suisse $269m (£210m) for the same failures. Switzerland's financial regulator, FINMA, also criticized the bank's behavior and mandated corrective measures.
An independent report had previously criticized Credit Suisse for its conduct in this matter, attributing its substantial losses to a "fundamental failure of management and control" at its investment bank and prime brokerage division.
The fines, totaling nearly £300m, will be borne by UBS, the bank's new owner. Further legal battles are expected for Credit Suisse in the future.
UBS has pledged to strengthen operational and risk management discipline at Credit Suisse and resolve remaining litigation in the best interest of stakeholders, including investors, clients, and employees.
The £87m fine is the largest ever imposed by the Bank of England's Prudential Regulation Authority (PRA), and the first time that officials have established breaches of four of its fundamental rules, including acting without due skill, care, and diligence, and lacking effective risk management strategies and controls.
Sam Woods, BoE deputy governor and CEO of the PRA, described Credit Suisse's failures as "extremely serious" and posing a major threat to the safety and soundness of the firms.
The PRA stated that the bank's failings were indicative of an unsound risk culture within the business, which failed to balance risk considerations appropriately against commercial reward. This led to a failure to address the risk posed by Archegos' portfolio, confusion of responsibilities, and inadequate responses to limit breaches.
The PRA also highlighted that Credit Suisse had not learned from past experiences and had not sufficiently addressed previously raised concerns. Photo by James Steakley, Wikimedia commons.